Transcript for Retirement Plan Distributions
Note -- Any federal tax advice contained in this transcript is intended to apply to the specific situation described and should not be considered official guidance independent of the presentation. The tax advice and statements contained herein should not be relied upon for retirement planning purposes without first consulting a tax or retirement planning professional. This transcript has been edited for technical accuracy and may differ slightly from the audio recording of the Retirement Plan Distributions Phone Forum. This information is current as of February 24, 2010. Since changes may have occurred, no guarantees are made concerning the technical accuracy after that date.
Ladies and gentlemen, thank you for standing by. Welcome to the Retirement Plan Distributions phone forum. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session; instructions will be given at that time. As a reminder, today’s conference is being recorded. I would now like to turn the conference over to your host, Miss Anita Bower. Please go ahead.
Hello, everyone. I’m Anita Bower with Customer Education and Outreach for Employee Plans at the IRS. I want to thank you for calling in for our phone forum on retirement plan distributions.
Again, please be advised that the following program including questions and answers will be recorded and maintained in accordance with federal recordkeeping laws. This recording is a work of the U.S. Government and is in the public domain. A transcript and/or audio recording of this program may be made publically available on www.irs.gov.
Today, we will hear from Marty Pippins, Manager of the Employee Plans Technical Guidance and Quality Assurance, and Rhonda Migdail, Manager Group II Employee Plans Technical Guidance and Quality Assurance. At the end of their presentation there will be a question and answer session.
We will e-mail a certificate of completion to everyone who registered for this session and who attends the full session. Enrolled agents will receive continuing professional education credit for the session. Other tax professionals should consult with their licensing organization to see if it will provide any continuing professional education credits for the session.
I also just want to point out that we have lots of retirement plan distribution information on our Web site, www.irs.gov/ep. While on our Web site, you can also subscribe to our free electronic newsletters. The link for the newsletters is in the left-hand navigation bar. We have two newsletters, The Retirement News for Employers, directed at employers sponsoring a retirement plan, and Employee Plans News, directed at retirement plan professionals. So check out our Web site and subscribe to our newsletters.
Now without further ado, here are Marty and Rhonda. Marty.
Thanks, Anita. This is Marty Pippins. And good afternoon, everyone, or good morning as the case may be.
I’m going to start off the session talking about required minimum distributions for 2009 and some of the guidance that we’ve issued over the last several months on this topic. And then, Rhonda will discuss some recent guidance dealing with paid-time-off plans and a couple of revenue rulings that were issued at the beginning of September this year. And then, we’ll finish up with some short discussions of 402(f) notices for benefit distributions that go to participants. Then we’ll discuss some rollover issues and some other guidance that was issued.
It looks like we’ll have plenty of time for questions at the end, and we have gotten some questions in advance. I’ll cover some of those as we go through the presentation today. But if we miss anything you will have an opportunity to ask questions live at the end of our presentation. Even though there’s a lot of you on the phone, I think you’ll have an opportunity to ask some questions.
So let’s talk about required minimum distributions for 2009 to begin. What happened was at the end of 2008, as you recall, there were general large declines in the stock market and in many retirement plan individual account balances and 401(k) plans, as well as IRAs. The problem was that the account balances as of the end of 2007 were used to determine the amount to come out in 2009.
So you have a look-back, which looks back one year, and the account balances at the end of 2007 were a lot higher than they were at the end of 2008. So when you’re looking at your calculation for 2008, you have a large amount that comes out in 2008 because of the look-back rule at the end of 2008 after the declines in the stock market have occurred people were looking at taking out a larger percentage than they might have wished because the amounts were calculated based on the end of 2007 balance. There were debates internally within IRS and in Congress about what to do, whether to grant some relief or move the calculation date forward to some intermediate date within 2008 or later. But Congress in WRERA did not give any relief for 2008. Instead, the normal amount would come out in 2008 based on the 12/31/07 account balance. And it was decided that 2009 would be the year that you would have a relief from required minimum distributions. So that amount essentially was set to zero.
Although, that’s an overly broad statement because some plans, depending on how they were written, you may end up with a different result and we’ll talk about it in some detail. But that’s why it was done, to preserve the retirement assets in plans and not to have too much come out as a result of this calculation methodology that’s used.
The Worker, Retiree & Employer Recovery Act of 2008 said that there’s a new code section 401(a)(9)(H) that says no required minimum distributions need be made for 2009. So at the beginning of 2009, we issued some guidance about reporting distributions that would have been required minimum distributions, if not for this new code section 401(a)(9)(H); and that was notice 2009-9.
What happened was this law was passed at the very end of 2008 and there wasn’t time necessarily for all plans to stop the reporting and the distributions at the beginning of 2009. So we granted some relief to say that you report amounts in accordance with our notice and you’ll be okay even if you’ve done something already in automatic processing. I think the law was enacted on December 23, 2008. So there were less than ten days before actions had to be taken with respect to reporting.
But that raised a lot of questions. Our notice just dealt with reporting for distributions that would have been required minimum distributions. And the main question that came up dealt with plan amendments and plan language and how this new law was to be interpreted.
I’d say the questions centered around the idea of whether or not the requirement was mandatory not to pay any required minimum distributions for 2009; so would all plans be required to suspend completely the required minimum distributions for 2009. Now, this does apply to IRAs as well as 401(k) plans and defined contribution plans. But it does not apply to defined benefit plans.
We had a lot of questions coming in the IRS and Treasury here about what to do and how to interpret different plan terms. And the approach that we took in our subsequent guidance, which is Notice 2009-82, dealt primarily with plan language issues. From the start, we decided that it would be very difficult for us to come up with one broad rule that would cover every plan under the sun and interpret all plans the same way with the same requirements that would apply to them.
So what we did in our Notice 2009-82 was to provide flexible [options] for both of those types of plans to allow them to either continue to pay out the distributions, if that was the interpretation that the plan administrator would take, and then allow the participant a choice to discontinue the 2009 required minimum distributions. For a plan that had a reference, for example, a reference to 401(a)(9) where you would reasonably read the plan to stop minimum required distributions for 2009, it might be that some participants might want to continue those 2009 required minimum distributions.
Other plans might have plan language that would pay out required minimum distributions not withstanding any of the new rules under 401(a)(9)(H). So you have plans in very different situations, some of which you could reasonably infer that no minimum required distributions would have to be paid out in 2009. Other plans might actually require minimum distributions to be paid out in 2009.
So what we did in our Notice 2009-82 was to provide flexible instruments for both of those types of plans to allow them to either continue to pay out the distributions, if that was the interpretation that the plan administrator would take, and then allow the participant a choice to discontinue the 2009 required minimum distributions. For a plan that had a reference, for example, a reference to 401(a)(9) where you would reasonably read the plan to stop minimum required distributions for 2009, it might be that some participants might want to continue those 2009 required minimum distributions.
So we have an amendment to deal with that as well and to allow the participants to choose to stop or continue the required minimum distributions for 2009. These amendments are setup with defaults and there are two sample amendments attached to the notice that any employer can use to administer this portion of the law.
So default number one would be to continue 2009 RMDs and allow the participant to have the opportunity to stop receiving the distributions for 2009. And that allows the plan sponsor to operate its plan according to its terms but still allow the participants a choice to stop their required minimum distributions if they want to leave more money in retirement plan solutions.
A different plan might have had plan terms that would discontinue 2009 RMDs. But rather than make that a broad sweeping rule that would apply to every participant in a plan, they can use Amendment # 2 to allow the participants to elect to receive distributions that would ordinarily be stopped in 2009, because no required minimum distributions would need be paid in 2009.
So the bottom line is that there’s a lot of flexibility in our plan amendment structure to allow the plan administrators to administer the plan according to their best interpretations. But still give flexibility to the participants as to whether or not they want to choose to leave their money in the plan to the greatest extent or to just continue to take the distributions out of the plan as required minimum distributions.
Now there is some transition relief in this notice as well. And I’ll get to that in a minute. The last thing I wanted to say about the amendment issue was that there is an extended amendment deadline under Section 201(c) of the WRERA Law. And that allows this amendment to be made up until the last day of the first plan year beginning in 2011; so that’s a couple years away. The plan should be operated in accordance with the rules that the plan wishes to use in the meantime. So your operation can take affect right away, but you actually don’t have to do the amendment under this section of the law until the end of the 2011 plan year. And there’s an exception for governmental plans, which gives them until the end of 2012 plan year.
And just a footnote on governmental plans, they are subject to kind of a completely separate set of rules under the law. They have under our regulations that we’ve issued, governmental plans are under a reasonable good faith interpretation of 401(a)(9). So governmental plans are not even required to follow our final regulations on 401(a)(9), as long as they’re operating in compliance with a reasonable good faith interpretation of the statute. So governmental plans are in their own special category not only for amendments but for just general compliance with 401(a)(9).
These issues were percolating all summer long, and we’re trying to move the guidance out as quickly as we could. The guidance that we issued in Notice 2009-82, however, did have some transition relief, because plans that did payout required minimum distributions and participants were given—maybe took the money and they weren’t sure whether they could roll that money over to an IRA, because it may not have constituted a required minimum distribution. So maybe they could roll it over to an IRA.
We’re giving until the end of November, November 30, 2009, which is about a month away, to put the money back into an IRA if they want to take advantage of this extended rollover relief. Essentially, this gives participants the right to an extended 60-day rollover period for any 2009 required minimum distribution and for certain other amounts that they may have received during 2009. Those amounts, if they’re done by this date, will not be treated as ineligible for rollover in 2009.
And the last thing I want to say about required minimum distributions, and we’ll get to some questions in a bit, is that IRAs are not required to be amended for 401(a)(9)(H).
At this point, I’m going to turn it over to Rhonda Migdail to talk about paid time-off plans and some other guidance that we’ve issued. And I will come back at the end and pick up a couple of questions that we received beforehand on 401(a)(9).
Okay, this is Rhonda. And what I’m going to talk about are two particular revenue rulings that were issued as part of the savings initiatives back in September. And as I assume all of you know, I’ll take a minute to explain that there were a number of different savings initiatives that came out on September 5th of this year.
The idea behind them was to look at different ways to encourage savings by Americans in retirement vehicles or otherwise. So among the topics covered, we’re adding auto enrollment to section 401(k) plans, auto enrollment in simple IRAs, and allowing people to take tax refunds and purchase savings bonds with them. And the ones that I’m going to discuss today focus on the use of accrued paid time off and allowing contributions of those amounts to qualified plans either on an annual basis or at termination of employment.
When we’re talking about paid time off, generally, what we’re talking about is accrued sick and vacation leave. The idea here is that people will, during the course of their career, accumulate some time, significant amounts of leave. And either some employers on an annual basis will require use-or-lose provisions where either individuals use the leave that they’ve accrued or they lose it. Or over a career, they’re permitted to accrue sick and vacation leave and then at the point that they terminate they take a distribution of it. And of course, if they just take it out of the plan, for example, at termination of employment
So the idea was that there are these pools of money that some governmental plans have-- accrued sick and vacation leave, and [these plans] have permitted such amounts to be contributed as an additional benefit to their primary plan. And the question was could corporate Subchapter C-type entities maybe make use of this as well. So these two revenue rulings are directed to those issues.
I’m going to start with 2009-32, which talks about the paid time-off contributions at termination of employment. There are basically four situations in that revenue ruling. The first two relate to a situation where the company maintains a paid time-off plan as well as a profit sharing plan. And at termination of employment an individual has a certain amount of accrued sick and vacation leave, and the question is whether they can contribute that into the profit sharing plan.
And we respond in each case that yes they can contribute those amounts. Of course, those amounts are going to be subject to the 415 requirement. Such amounts will be taxed when they are eventually distributed. The amounts that are contributed into the profit sharing plan—in situation one and two-- there’s no election by the employee as to the particular amount. Basically, the accrued [unused ] amounts go into the plan up to the 415 limits. Those contributions are treated as non-elective employer contributions.
The ruling also indicates that because the amount that’s contributed and allocated for each participant varies on the amount of the participant’s unused paid time-off that it’s likely to preclude a plan from satisfying a designed-base Safe Harbor under 401(a)(4). Rather, general testing would probably be needed in those situations.
Also the amount that’s contributed will only be included in the individual’s gross income in accordance with section 402(a) when the amount is distributed. There’s also a reminder in the revenue ruling that those amounts may also be subject to the additional 10% tax under 72(t) unless, of course, the distribution is made at a point after the participant attains age 59 ½ or after separating from service after age 55. And the rulings also indicate that the contribution of these amounts to the profit sharing plan will not cause the PTO plan to fail to qualify as a bona fide E-Sick and Vacation Leave Plan.
The difference between situation one and situation two in revenue ruling 2009-32 is on the timing of the contribution of the amounts into the plan. In the first situation, the amounts are contributed mid-year. And in the second situation, the individual terminates at the end of the year, and so the contributions are not made until the following year. So the question that really was addressed there was whether that is permitted or not and how it works with respect to 415(c) in particular. [Because the amounts contributed may exceed the 415 limits.]
So the analysis for that second situation goes through a scenario where half of the amount of the accrued sick and vacation leave is contributed to the plan and then half of it is paid out to the employee in cash. The purpose for that, as you’ll see in the analysis, is to ensure that the 415 limit is satisfied.
There are two other situations that are discussed in the ruling as well. It’s situation three and four in the revenue ruling. And they deal with a situation where you have the PTO plan and you have a 401(k) plan. The difference in the analysis there relates to the way that the contribution of the unpaid leave is treated, because in those situations, basically, the employee is provided the ability to contribute those amounts in. So the election, of course, turns those contributions from non-elective employer contributions into elective contributions under 401(k) plan.
Most of the analysis remains the same with respect to Section 415. But it deals with the treatment of the elective contributions as needing to satisfy the requirements of 401(a)(30) of the code, which requires that the amounts don’t exceed the limits of 402(g). And again, situations three and four in that analysis relate, again, to either contributions on an annual basis or contributions at termination of employment.
The other revenue ruling, which is Revenue Ruling 2009-31, goes through [the situation where the contributions are made on an annual basis.] There are two situations in there. One of them is for profit-sharing plans and the other one is for a 401(k) plan. And using similar analysis determine the ability to take that use-or-lose leave, the lose piece of it, and be able to contribute that into a qualified plan.
That is basically a review of the paid time off. Marty, I’m going to turn it back to you.
Thanks, Rhonda. We’re going to move onto section 402(f) on guidance, and then we’ll go to talk about some rollover guidance. And then we’ll finish up with some more detailed questions, I think, on required minimum distributions that we will have time to go into. Hopefully, that will anticipate some of the questions for later on.
To start with, section 402(f) of the code requires when somebody is getting a benefit distribution to—the participant has to be informed of their rollover rights. And there’s an older notice that was written several years ago; it’s notice 2002-3. So that’s about 7 years out of date, if you will, for many different law changes in the meantime that have affected the rollover rights.
In particular, the Pension Protection Act put in a major update to rollovers between plans. So you can have rollovers between 401(a) plans, 403(b) plans, 457(b) plans. And also there’s a creation of Roth 401(k) plans, which create unique tax issues when you have rollovers between Roth 401(k) plans and Roth IRAs and other designated Roth accounts in these plans.
So the basic goal of this guidance, which is Notice 2009-68—and this came out on the same day of the two revenue rulings that Rhonda just finished talking about was to greatly simplify the explanations that were given to participants. The earlier notice had been accumulated over some period of years, and it wasn’t as cohesive as we would like. So we tried to organize the notice requirements so that the participants would be more easily able to understand them and try to clarify some of the language that was in there before and just generally organize it and simplify it as much as possible.
The first thing that we did was made a strategic decision to split the 402(f) notice into two pieces. The first one is for payments not from a designated Roth account. So this would be, for example, a Roth 401(k) account. And the second notice is for payments from a designated Roth account. So there’s different rollover options and different information about those two types of plan accounts from which the amounts are being rolled over. And there’s different tax consequences, as well, for the two types of plans.
I will say that the notices are still somewhat lengthy in size. That’s just the nature of the beast. It’s hard to simplify everything without missing important parts of the law and certain rights that participants have. But the organization was done in a way that is, I think, much more understandable than it was before in the earlier notice. We use some better formatting with bold-faced titles and bullets. And you can kind of focus in on exactly what sort of information you’re looking for by going to a specific section more easily than you could before.
The first notice—and I’m not going to go through these in any great detail, but the first notice for payments not from a designated Roth account has several sections about your taxes that you generally still may have a 10% additional income tax if you’re under age 59 ½ and you don’t do a rollover. That’s important information that’s right up front. You can roll these amounts over to either an IRA or an employer plan, which includes a tax-qualified 401(a) plan, a 403(b) plan or a governmental section 457(b) plan.
We do point out the plan has to accept the rollover. The employer plans have to accept the rollover. So it’s not an automatic right that the participants would have, but it’s based on the plan terms on an individual basis.
And again, the same basic options that were in there before, there’s two ways to do a rollover. You can do a direct rollover into your IRA or your employer plan or you can do an indirect rollover by making a deposit into an IRA within 60 days after you receive the payment to make the deposit.
Of course, there is some—this is not part of the notice requirement, but there is a new waiver of the 60-day rollover requirement under the law. And the IRS has a rulings program that administers that. You’ve got 20% withholding if you do not do a direct rollover. And if you do not rollover the entire amount, the portion not rolled over will be taxed and subject to the 10% additional tax on early distributions if you’re under age 59 ½, unless you have one of the exceptions that applies under Section 72.
At the end of the notice, we added something that was a little bit of a new issue concerning non-resident aliens. We think this is helpful to provide information on this as we’re getting a lot of questions on international issues. The advisory committee for TEGE that we work with issued a report on international issues last June, actually in June of 2009. And one of the recommendations was that they provide some information on rolling amounts over to or how the rollover rules apply to non-resident aliens.
This actually provides new guidance. And it says if you’re a non-resident alien and you do not do a direct rollover to a United States IRA or a U.S. employer plan, instead of withhold 20% the plan is generally required to withhold 30% of the payment for federal income taxes. It refers to an IRS publication, PUB 519, U.S. Tax Guide for Aliens, and also IRS publication 515, Withholding of Tax on Non-Resident Aliens and Foreign Entities. So 30% withholding if you do not do a direct rollover to a U.S. IRA or employer plan. This was coordinated through our international tax office by the way. So we feel on solid ground here as far as the rules on this issue.
With respect to the second 402(f) Notice, which is payments from a designated Roth Account, this has general information about how the rollover can affect your taxes. And the general rule for Roth accounts is that after-tax contributions that are included in a payment from a designated Roth account are not taxed, but earnings might be taxed. Then have a tax treatment of earnings is included in the payment. You’ve got to look at whether or not your payment is a qualified distribution under the rules for Roth accounts.
This also says that you can rollover the payment from a designated Roth account to either a Roth IRA or a designated Roth account in an employer plan. Again, remember, you’ve got Roth 401(k) plans and you’ve also got Roth 403(b) plans. Same rule as for the payments from a designated Roth account, which is that the payment—the rollover has to be able to be accepted by the plan. All plans may not accept rollovers. But if your plan does accept a rollover, it has to go to one of these 2 plans, either a Roth 401(k) or a Roth 403(b).
Last thing I want to mention on this 402(f) Notice, generally, is that we do intend to have a Spanish translation available at some point. The reason we didn’t do a Spanish translation of this 402(f) Notice at the same time that we issued the guidance is that we were working on the guidance language up until the last point. So we’re not really locked down on the language in the notices until it’s actually published. Now that’s it’s published it has been turned over to another office in the IRS that does Spanish translations.
Now this is—I’m going to count up the pages here; one, two, three, four, five pages in the Internal Revenue bulletin for each of these two notices. So these are still rather lengthy and the translation, obviously, will be just as lengthy. But we do intend to do that; we think that’ll be helpful for plans that have a higher percentage of Spanish-speaking population that get these benefit notices. And hopefully that will—… can send out both if they want. But hopefully it will be a more official translation; something coming from the IRS that reflects the same language in there so that not every plan administrator out there that wants to do a notice in Spanish has to do their own translation. It’ll just be more efficient if the IRS does it. So we’re working on that. I don’t have a projected timeframe for when we’re going to do that at this point. But we do intend to get that done.
We’re now going to talk about, just briefly, a short notice that we issued at the same time as the 402(f) guidance and the paid time-off revenue rulings, and that is Notice 2009-75. And this describes the tax consequences of rolling over an eligible rollover distribution from a 401(a) plan, a 403(a) plan, a 403(b) plan or an eligible plan under 457(b).
What you have is an expanded ability to do these rollovers, and there is a definition of eligible employer plans which is an amount that can be rolled over. These are the types of plans that can be used to rollover to a Roth IRA. This covers four categories. As I mentioned, 401(a) plans, 403(a) plans, annuity plans, 403(b) plans for tax exempt and some governmental entities and 457(b) plans can all rollover to a Roth IRA.
There’s a split in the rules beginning in 2010 or before 2010 and 2010 and later which is this $100,000 adjusted gross income limit, which prevented, for prior to 2010, these rollovers from taking affect. If you have an adjusted gross income of $100,000 or more you could not do this before January 1, 2010. And the adjusted gross income limit of $100,000 goes away in 2010, and this was a recent change in the law under the WRERA Act, and that is reflected in this guidance.
The tax treatment, I think, of how this is done is covered in the—there’s only two questions in this guidance, Q&A I; and then Q&A II covers the adjusted gross income limitation change. It’s a very short notice, but you can take a look at that and this hopefully will be of some help.
I don’t know if we’ll have any questions on that, on these last two things. But I think we did get a lot of questions on the required minimum distribution rules beforehand. So I’m going to turn back to some of those at this point. We’ve got 10 or 15 minutes or so before we have a question and answer period. But I wanted to go through some of these questions in more detail. They’re a little bit more complicated and that seemed to be where most of the interest in the session was concentrated.
So going back over some—this is a basic question. Are amendments required if employers mandate 2009 required minimum distributions or if employers require that no required minimum distributions will be distributed are amendments required? And the basic question is it depends. Employers are not necessarily required to make amendments to follow one rule or the other. But they can make their amendments match up to the terms of their plan or they can actually change the terms of their plan if they operate differently from them.
So if you had a plan that did require minimum distributions to come out of the plan with no cross reference to 401(a)(9), that plan may have operated that way and pushed money out to participants during 2009. That plan administrator may have been reading the plan terms to require that those amounts come out notwithstanding the change in the WRERA Act that would allow plans not to payout required minimum distributions.
In that case, that plan administrator may want to adopt an amendment that would not require minimum distributions to be paid and would in fact allow amounts that have been paid out to be rolled over if they’re done by November 30th of 2009. So that sample amendment that we’ve issued in the notice could be used to have that effect.
On the flip side, if you did not distribute any required minimums for 2009 and you have a participant that wants to get the minimum required distribution for 2009, then you could amend your plan to give that participant a choice to receive the required minimum distributions. Because maybe that particular participant wants to get the money out; they don’t want to; maybe they need it for income and they don’t want to leave it in the retirement plan solution.
Again, to go over what I said before, we didn’t want to address all of the possible permutations of plan language and whether particular language in a plan meant one thing or another. There is a lot of flexibility that’s given to the plan sponsors to figure out for themselves how their plan language works. So it’s not a requirement to adopt these sample amendments in the plan, but it is offered up as a way to give the plan sponsors, as well as the plan participants, the maximum flexibility for determining what they want to take out in 2009.
There was a question on whether individual employers have to sign plan amendments. That is generally the case if there is an adoption agreement involving a pre-approved plan, so you’ve got different situations for different plans. You may have a pre-approved plan that would either be a prototype sponsor or a volume submitter practitioner and those entities may have authority to amend the plans without any action by the employers. So if the prototype sponsor or the volume submitter plan has the authority to amend the plan and the employer is not really given a choice then no employer action would be taken; you would not need an employer to sign the amendment.
But, if the prototype sponsor is going to give the plan the employer, the individual employer, some choices in an adoption agreement then the employer would be required to sign the amendment if there’s a change to the adoption agreement language. But again, if no options are provided to the adopting employers then you can merely amend the pre-approved plan on behalf of the employers. That’s the same rule whether it’s a prototype plan or a volume submitter plan.
There was a question on 411(d)(6) cutbacks where you have either a forced payout or you retain all of the minimum required distributions or you give employers a choice to do different things. We don’t deal with a 411(d)(6) note of relief or issues in the guidance that we issued. But we felt that having the participants in the sample amendments given a choice as to whether they want to continue the minimum required distributions even though the employer may be adopting an amendment as a default to stop the distributions. Or the flip side, where the employer wants to do the opposite and the employees have the opposite choice they can either stop or start the distributions. That’s protecting the participant’s rights and giving them full choice. So we kind of avoid that issue by letting the employees have full rights, whichever way the employer wants to go, to stop the required minimum distributions or to continue to pay them out.
Another question was on the annuity starting date rules. If they’re either reapplied or not applied that means you’re going to start over with the new annuity starting date rules. Does that need to be in the amendment? The questioner notes that the sample amendments do not include such language. It is true that the sample amendments do not include such language. This is a question of scope. We think that the plans that want to have new annuity starting date rules in the case where they stop a minimum required distribution and start it up again later on and have the new annuity starting date rules apply are much fewer than the general majority of the plans, for whom this would not be an issue. So we did not put that into the plans, into the sample amendments.
The reason for doing that is we don’t want to kind of clutter up a sample amendment with inapplicable rules that just don’t apply to the vast majority of plans, but if you want to do that you can go ahead. Remember that these amendments per se are sample amendments. They don’t need to be followed to the exact letter. They’re a guide. They can be modified as appropriate. They are meant to be helpful. They are not meant to be an absolute requirement. We do think at the IRS, if the amendment is followed, would not really be challenging the amendment as not following the rules. We realize that we’re giving some level of reliance on these amendments, but you’re not required to follow sample amendments or even sample language to the exact letter. If you don’t, you have absolutely no reliance. That’s not the way we’re setting that up, so plans could be set up if you want to have a new annuity starting date after the RMD. You can go ahead and do that, but we’re not really giving you any help in that regard.
There was a question about, speaking of sample language, a list of required modifications, 51, which defines eligible rollover distributions, which, in part prohibits required minimum distributions and certain installment payments from being rolled over. The questioner notes that the sample amendments do not include such language, but in fact, there is already an override in the sample amendments that we’d like to note under 401(a)(9)(H), there is no “required minimum distribution for 2009. So if you have a definition of your eligible rollover distribution, which, in part prohibits required minimum distributions” and other payments from being rolled over then for 2009 there is no RMD. So there is probably some element of cross reference or lack of cross reference in there because there is no RMD defined for 2009 under 409(H).
The last question I want to get to before we throw it open to the live audience is kind of a tricky question on the structure of 201(a) and 201(b) of the Worker, Retiree and Employer Recovery Act. The question specifically concerns a sentence in the RMD notice in Q&A 7. I’ll give you some background on this so we can hopefully make this comprehensible. It’s concerning a participant, who is turning 70 ½ in 2009 and then delaying the payment of the required minimum distribution until 2010. Up to April 1, 2010 if it’s a first time RMD payment you can delay it until April 1, 2010 for the person who turns 70 ½ in 2009.
There is a question about the relation between 201(a) and the technical explanation of the WRERA Act. The question boils down to the withholding provisions that otherwise would apply and how this RMD is looked at. The sentence in the notice says, “Withholding for a 2009 RMD that is paid in 2010 is determined without regard to 201(b) of WRERA or this Q&A 7.”
The answer to the question is it’s determined without regard to 201(b) of WRERA, but it’s not determined without regard to 201(a) of WRERA, which is the key to answering the question. 201(a) of WRERA provides for a waiver of the minimum required distributions under 401(a)(9) for 2009. 201(b) of WRERA changes the distribution rules or amends the distribution rules under 402(c) of the code to provide that any amount distributed during 2009 that is an eligible rollover distribution, but would not have been an eligible rollover distribution had 401(a) applied during 2009 is not treated as an eligible rollover distribution for purposes of 401(a)(31), which is direct and automatic rollovers of eligible rollover distributions, 402(f) and 3405, which is the 20% withholding.
So I guess the answer to this question is embedded within 201(b) of WRERA, which says that any amount distributed during 2009 that is an eligible rollover distribution. But would not have been an eligible rollover distribution had 401(a)(9) applied during 2009, you don’t get the treatment as an eligible rollover distribution under 401(a)(31) and then 3405 relating to 20% withholding. We felt that this was restricted to amounts that were distributed during 2009 so that would not include amounts that are distributed during 2010 as an RMD for somebody who turns 70 ½ within 2009. So it actually had to be based on the calendar year 2009 to get this special treatment. That was our interpretation under the language in 201(b) of WRERA, which, again, seemed to restrict this simply to amounts paid during 2009.
The questioner had referred to the 201(a) of WRERA, which talks about the fact that no distributions are required to be made by April 1, 2010 for those people, who turn 70 ½ within 2009. That is the case, but the issue is really under 201(b), which is the special withholding treatment and that only applies to amounts distributed during 2009.
So that’s kind of a complicated, long-winded answer to that question. But if you refer closely back to Q&A 7 of Notice 2009-82 you’ll see that there is a specific reference to that this amount of withholding for 2009 RMD that’s paid in 2010 is determined without regard to 201(b) of WRERA, which means that it is determined with regard to 201(a) of WRERA.
I think we’re about on schedule to open it up for questions here and I will turn that back over to the moderator to start that process.
Before we get to that I have a late breaking development and, no, this was not pre-planned. This came across my desk at 2:43 this afternoon. Notice 2009-86 was just released by our Media Relations. What it provides is a further extension of the effective date of the normal retirement age regulations for governmental plans. Previously, Notice 2008-98 had indicated the effective date for those rules for governmental plans was for plan years beginning on or after January 1, 2011 and Notice 2009-86 now extends that effective date to plan years beginning on or after January 1, 2013. Just a late breaking news item that has come up.
Thank you, Rhonda. I can confirm what Rhonda said, that was definitely not planned. We’ve been trying to get that notice out for several days. Yes. It’s just kind of a coincidence that we’re doing it right now. Usually we like to give you at least 15 minutes’ notice before the start of the session rather than in the middle of a session. Just joking.